The Top 5 Budgeting Challenges in Construction Project Management
In a turbulent economic climate, developing reliable, accurate budgets for construction project management is a daunting task, especially for small and midsize construction companies.
Budgets have to be precise while still honoring the uniqueness and complexity of each job. In our 2023 Software Advice Construction Feedback Survey*, we asked construction professionals involved in the construction budgeting process about their biggest challenges.
We've identified solutions for each of the top five challenges (time, budget, inaccurate estimates, accuracy, and risk identification) so you can proactively tackle these issues at your own construction firm.
Challenge #1: Time
What happens when budgeting takes too long? In construction project management, the answer is often both financial and logistical challenges.
A long budgeting process between projects can delay the start of the next job, meaning you may have to put workers on hold while you crunch the numbers. In the construction industry, many subcontractors are constantly on the lookout for work, so they could leave for another job while they wait and may end up unavailable when your next project starts.
Investing extensive time in forming a budget also delays the quote process, which can dissuade potential customers who want a quick response and for their project to get started. If you take a week—or longer—to get the budget ready, the customer may lose patience and go with a competitor instead.
Solution: Use software for faster budgeting
One of the most straightforward ways to streamline your budgeting process is by using software budgeting tools or templates that clearly outline everything involved in each project and calculate your total costs, phase by phase. With this in hand, you can give customers the accurate numbers they want and establish a financial roadmap for each project.
Interested in construction-specific financial software options?
Explore construction estimating software to help with your budgeting process.
Challenge #2: Budget limitations
Budget limitations restrict your projects in several ways:
They limit the quality of materials, making it difficult to meet minimum code requirements or achieve desired results.
Can extend the time frame of a project because you may lack the funds to hire and pay all the workers you need for each phase.
These restrictions can ultimately make your project cost more; using fewer workers over a longer period of time often costs more than using a large crew to handle each phase.
Solution: Use tools to gain deep visibility into each project
If you use construction accounting software, you can leverage full visibility into what each phase may cost to make money-saving decisions. Construction accounting software surfaces cost-saving opportunities that make it easier to work within limited budgets without sacrificing customer satisfaction.
Challenge #3: Inaccurate estimates of project and material costs
There's nothing worse than when you run out of money during a project, but overestimating costs can end up giving customers buyer's remorse if they realize they could've gotten the same result for less money. Either way, inaccurate estimates can come back to bite you in the end.
Solution: Improve cost accuracy by using construction estimation software
Accurate project and material cost estimates have a positive effect on many elements of the construction project management process:
You get enough money from customers to fund each project, ensuring you can pay your workers on time.
You don't waste time looking for new suppliers that offer cheaper materials to avoid going over budget.
The quality of your project increases because you can factor in costs of preferred materials.
Customers are happier because they don't have to deal with requests for additional funds midway through the project.
With construction estimating software, project estimates are more accurate since the program can outline all costs associated with a project as well as the time it takes to complete each phase. In addition, you can allocate extra funds for hiring additional subcontractors or renting equipment to speed up your projects.
Challenge #4: Accuracy
Even with a solid estimate, a budget can still suffer from overruns due to inaccuracy in other elements of the process.
For example, suppose you have to install an access ramp in front of a commercial building. On the surface, it looks like a fairly straightforward concrete and steel job. But partway through, you realize that the soil underneath the accessway doesn’t have sufficient density to support its weight. You now have to hire an engineer to work through the soil issues and design structural supports that reach the bedrock.
A structural engineer can come with a hefty price tag, but that's not all. The time you spend putting the project on hold can ruin your timeline and customer relationships.
Solution: Use budgeting calculators to identify all necessary costs early on
Software that includes budgeting calculators presumes that these types of support issues will be involved. Listing these among your budgeting concerns encourages you to investigate these and other challenges, allowing you to check all the boxes and start each project with confidence in your estimates.
Challenge #5: Risk identification during planning
Risk identification can mitigate problems—often before they arise. If you don't identify potential risks during the budget planning process, you may end up having to over-invest in certain phases or elements.
For example, suppose a project in a Miami suburb extends through July and August. In your planning, you forget to account for those months being the hurricane/rainy season in the area. Work commences, but your job site is rained out for multiple days in your first month.
Workers show up at the job site, start working, then have to stop and wait for hours before starting again, if at all. You still have to pay each person for a full day even though only a fraction of the work is getting done, and your initial budget quickly becomes obsolete.
Solution: Leverage budgeting software that identifies risks and allocates reserves accordingly
The right construction budgeting software will prompt you to incorporate budget reserves to account for a range of risk factors. The software can also guide your decision of how much to allocate to mitigate each risk. You can also use budgeting software to paint a more accurate risk picture for insurance purposes.
The best way to tackle top construction budgeting challenges? The right software
By using technology to meet these challenges, you can minimize—or eliminate—the effects of your budgeting headaches. Many software solutions come with built-in tools that save time and make it easier to work with limited budgets, boost accuracy, and identify risks.
Building effective budgets provides financial control and predictability. Software Advice's construction budgeting guide and free template are a great place to start, and our advisors can help you choose the right construction estimating, accounting, and management tools to meet your business needs.
Survey methodology
*Software Advice's 2023 Employee Feedback Survey was conducted in January 2023 among 301 U.S. respondents to learn more about construction software and its benefits. Respondents were screened to be a construction professional with a role in their firm's selection/purchase of construction software.